Lord Turner believes that a rise in capital for some of the world's biggest banks may encourage lending

A rapid increase in the capital of some of the world’s most significant banks may be a short cut to promoting new lending and breaking free of the slump, says Lord (Adair) Turner.

The Financial Services Authority chairman told officials in Tokyo that ‘rapid increases in bank capital resources’ could cut through the stalemate that has left banks without the capacity to lend because they are rebuilding balance sheets.

Turner’s remarks suggest that with hindsight, the British banks should have had an even bigger bailout in the financial crisis.

They largely appeared to be aimed at the eurozone, where bank reforms have been proceeding at a snail’s pace.

But it could equally apply to some of Britain’s banks - notably the Royal Bank of Scotland - that is having to shrink parts of its balance sheet and keep up new lending to businesses and households at the same time.

The FSA chair’s remarks will be closely scrutinised in the light of his status as one of the favourites to succeed Sir Mervyn King as the governor of the Bank of England.

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Turner clearly felt the need to be seen and heard at the Tokyo meeting where two other contenders for the job, deputy governor Paul Tucker and Bank of Canada governor Mark Carney, have made significant public appearances.

It is Turner’s second significant suggestion for changes to the shape of the financial system in the last week. He proposed in London that the authorities should embark on unconventional measures that could include writing off the £375bn of gilt-edged stock it has bought as a result of quantitative easing.

Turner downplayed the suggestion of a write-off, saying it was BBC business editor Robert Peston’s idea, not his own.

Speaking to the Bretton Woods Committee of IMF veterans in Tokyo, Turner saw America’s rapid recapitalisation of its banks in 2009 as the model for Europe and others to follow.

‘That required banks to conduct robust stress tests’ and involved a ‘public back stop if banks were unable to raise new capital from private sources in a proscribed period.’

The FSA chair believes that the slow pace of deleveraging has been among the reasons for the sluggish recovery of economies around the world and the process has been made worse by the conflict between restoring balance sheets – so they meet tough new rules set by regulators – and the provision of new loans.

Turner also called for bringing ‘shadow banking’, from hedge funds to money market funds, within the regulatory net so as to contain risk taking.